New Delhi, Sep 23 (PTI): The rupee should ideally be at 58-60 to a dollar based on the intrinsic value of the domestic currency, the finance ministry said Monday.
”There is something called intrinsic value of rupee. The intrinsic value of rupee comes from its purchasing power. The intrinsic value of rupee in Real Effective Exchange Rate (REER) term could be somewhere between 58-60,” Arvin Mayaram, secretary to the department of economic affairs, said here.
The rupee, which touched an all-time low of 68.86 to a dollar last month, was trading around 62.63 to a dollar on Monday.
The REER refers to the rate of the currency in relation to the value of currencies of major trading partners.
The Reserve Bank of India and the government have taken a host of steps to arrest the slide in the value of domestic currency, including putting restrictions on the import of gold, checking outward remittances by individuals and overseas investments by companies.
Mayaram said the demand for bulk diesel is coming down and it would help the government save about $1 billion this fiscal.
In order to rationalise fuel prices and bring down under recoveries of oil marketing companies, the government had earlier this year allowed them to charge market rates from bulk users of diesel. Retail customers, however, continue to get diesel at subsidised rates.
Referring to the impact of tapering of monetary stimulus by the US Federal Reserve, Mayaram said the government has enough ammunition to deal with the situation.
”I do believe when tapering happens then there will be outflow of capital but the fact also remains that we have enough ammunition in our hand... And therefore there is no room to be fearful of rupee taking a tanking,” he said.
He said India has foreign exchange reserves of $270 billion. If the current trend continues, India would get an additional capital inflow of $40 billion in the current financial year.
Last week, the US Federal Reserve surprised the markets by saying it will continue with its monthly $85 billion bond buying programme and wait for more evidence of growth recovery before thinking of unwinding the stimulus.
Expectations that the stimulus programme would be tapered had led to fears of capital outflows, causing the rupee to depreciate against the dollar and stocks to fall.
Mayaram said foreign direct investment (FDI) this current fiscal is expected to be around $36 billion.
In the first quarter, the net FDI flows into the country added up to $9 billion, which is 70 per cent higher than FDI inflow in the first quarter of last fiscal.
On growth, Mayaram said, “We are not satisfied with 5 per cent growth rate. India's potential rate of growth is 8 per cent. In the next two years, India will again start growing at 8 per cent.”
Economic growth in India in the April-June quarter fell to a four-year low of 4.4 per cent. In 2012-13, economy grew at a decade's low level of 5 per cent.